If you have been looking into car insurance, you are probably checking out popular insurance companies. For instance, State Farm is most people’s choice for car insurance.
If you saw the prices for State Farm, you may be wondering why the rates are so expensive. We did the research, and here is what we discovered!
Why Is State Farm So Expensive?
1. Well-Loved Company
Typically, when a company is popular or well-loved, its products and services will be more expensive.
State Farm is regarded as one of the most popular insurance companies in the United States, holding 16% of the market share.
Also, State Farm received a high rating in the JD Power 2021 US Auto Claims Satisfaction Study, and the ratings were based on customer satisfaction.
As such, State Farm has the leeway to charge more for its services since people will be willing to pay for State Farm’s insurance.
2. Thousands Of Agents
Most insurance companies like State Farm hire many insurance agents to encourage other people to buy insurance from them.
It is estimated that State Farm has more than 19,000 agents throughout the United States except in Rhode Island and Massachusetts.
As such, State Farm has to pay each of these employees for working, which gets factored into the cost of State Farm’s insurance rates.
Additionally, most of these agents do not have a set income, as insurance agents can earn more depending on how many clients they get.
Therefore, State Farm would have to make sure that each agent gets paid the commission they earned for each deal.
3. Customer Service
Insurance companies like State Farm require thousands of customer service representatives.
These customer service employees will handle any concerns or complaints that State Farm’s clients may have.
Usually, clients have a lot of questions, such as what their insurance plan covers, so the customer service representatives will be in charge of responding to each concern.
Of course, State Farm has to pay for every customer service employee that it hires, which makes State Farm’s insurance cost more.
4. High-Risk Customers
Insurance companies assess the estimated cost of a customer’s insurance plan by assessing the likelihood of the customer requiring a claim.
If the customer is likely to get into an accident and need a claim, these customers will be regarded as high-risk customers.
Also, while it is the job of an insurance company to pay for claims, insurance companies will still want to make a profit.
As such, insurance companies like State Farm will charge high-risk customers higher premiums to make up for the potential loss.
For example, a person with a bad driving record with several severe driving violations would have to opt for State Farm’s high-risk auto insurance plan.
That said, a bad driving record means that the driver will likely get into an accident again, so State Farm will be able to avoid making a loss before the accident occurs.
5. Bad Credit Score
Your credit score can affect the cost of your insurance, and this will be applied to nearly every state in the United States.
Usually, people with good credit scores can get reasonable rates for insurance in State Farm.
However, bad credit scores usually face more expensive insurance rates, and some people can pay as much as double the average insurance rate.
On the other hand, a person with good credit can get up to 25% off their insurance rate because of their credit score.
Normally, companies like State Farm want to ensure that clients pay their insurance premiums on time.
People with bad credit scores can be considered risky customers to deal with, which is why State Farm can raise the rates for its insurance.
6. More Coverage Options
Typically, the more coverage you get on your insurance plan, the more expensive it will be.
That said, you will be paying for as much insurance as possible, which can easily drive up your insurance rate at State Farm.
For example, if you get a premium insurance plan that features a multitude of insurance policies, your State Farm insurance will be more expensive.
7. Bundle Insurance
State Farm offers bundle insurance deals that people can get for multiple forms of insurance in one plan.
For instance, you can get car and home insurance in one bundle insurance plan, so you do not have to pay for two separate plans.
While the idea behind the bundle insurance plan is for you to save money, these State Farm plans will still naturally be more expensive than other insurance plans.
Further, this is because you will still be paying for more than one insurance plan, making State Farm insurance more expensive.
Therefore, buying a bundle insurance plan from State Farm would cost more than a single one, but you would still save money if you need multiple insurance plans.
State Farm’s insurance is expensive because it is a very popular insurance company with a high customer satisfaction rate, making people more willing to pay for it.
Also, State Farm insurance gets more expensive when you are a high-risk customer, have bad credit, or buy a bundle insurance plan.